According to a report by the South African Liquor Brandowners Association (SALBA), the alcohol ban expanded the illicit alcohol market to a staggering 30% of all sales. Picture: Supplied
By Paul Maritz
THE South African government is currently considering further tax increases on alcoholic beverages, ostensibly to combat alcohol abuse. At first glance, this might seem like a logical and well-intended initiative. However, as with many simplistic solutions to complex problems, history has shown that so-called sin taxes are not only ineffective but often make the problem worse.
Rather than reducing alcohol abuse, this policy is far more likely to cause greater harm. It creates what is known as the Cobra Effect, where a supposed “solution” exacerbates the original problem or creates unforeseen complications.
What is the Cobra Effect?
The Cobra Effect originates from colonial India, when the British government offered a bounty for killing cobra snakes to reduce the number of these deadly reptiles. Clever locals soon realised that breeding cobras for the bounty was more profitable than catching them in the wild.
When the government discovered this unintended consequence, they scrapped the bounty program—leading breeders to release their now-worthless cobras into the wild. The result? The problem became worse than before. A higher tax on alcohol is likely to have the same effect, worsening the original issue rather than solving it.
Unintended consequences and historical examples
The law of unintended consequences is not just a theoretical concept—it has been repeatedly proven in practice over decades. One famous example is Prohibition in the United States during the 1920s. The government aimed to reduce alcohol consumption and its negative effects by banning it outright. Instead, it led to:
Because illegal alcohol consumption is difficult to track, we cannot be certain whether total consumption decreased—but the limited available research suggests the opposite: More dangerous, unregulated alcohol with higher alcohol content was produced and consumed in even greater quantities.
South Africa has its own examples. During the Covid-19 pandemic, the government imposed a temporary alcohol ban, which not only devastated the legal alcohol industry but also massively strengthened the illegal liquor trade.
(And let’s be honest—how many of us, while pretending innocence, didn’t at least attempt to brew some homemade pineapple beer during those lockdown months?)
According to a report by the South African Liquor Brandowners Association (SALBA), the alcohol ban expanded the illicit alcohol market to a staggering 30% of all sales. Alcohol-related policy missteps have consistently been textbook examples of the Cobra Effect—this time, in our pubs.
Higher prices, same consumption
The core assumption behind raising alcohol taxes is that higher prices will discourage consumption. The problem? Alcohol consumption is not always elastic—meaning higher prices don’t necessarily lead to lower consumption.
For many consumers, alcohol is a necessity rather than a luxury, and instead of cutting back, people reduce their spending elsewhere to maintain their drinking habits. One study in 2017, which researched the US state of Illinois’ alcohol tax increases, found no significant reduction in fatal alcohol-related crashes, indicating that higher taxes did not curb excessive drinking behaviors.
For low-income households, this often has tragic consequences. If parents redirect more of their budget to alcohol, they cut back on essentials like food and electricity— directly impacting children and other dependants. Towards the end of 2024 the Times in the UK published a report from Sheffield University, which evaluated Scotland’s minimum unit pricing (MUP) policy, which set a price floor for alcohol units.
The findings revealed only a slight decrease in overall alcohol consumption and no significant change among heavy drinkers, suggesting that pricing strategies alone may not effectively address harmful drinking patterns.
That this is morally wrong is undeniable. But the fact that it happens frequently enough for economists to have a term for it is also a fact.
Economic and social impacts
So, what exactly is the government’s plan? South Africa’s current alcohol tax system uses an excise framework with set tax rates:
These rates are already higher than the global average and often increase faster than inflation, making alcohol progressively more expensive.
Now, the government proposes to increase these taxes further, to:
The stated goal? To make cheaper alcohol less accessible, reduce consumption, and increase tax revenue.
The likely real-world effect? Alcohol abuse rates will stay the same—while government profits skyrocket.
Illustrating the Tax Impact
To understand how these tax hikes will impact consumers, let’s take an example:
A 750ml bottle of Bain's Cape Mountain Whisky currently costs R299.
For many consumers, an extra R20 per bottle might not seem like a huge difference. The immediate dent in their budget may be small, but for some households, it could mean one less loaf of bread per month for a child.
Tourism takes a hit
Then there’s the tourism industry, one of South Africa’s biggest economic assets, which is likely to be hit the hardest.
Maintaining a wildlife reserve is incredibly expensive. One way lodges and safari operators sustain their operations—while preserving nature and hosting top-tier tourists—is through strong profit margins on alcohol sales.
Additionally, South Africa’s vineyards and wine routes attract thousands of international visitors every year, bringing in valuable foreign currency.
When alcohol becomes unaffordably expensive, these tourism offerings become less attractive, further undermining our economy.
The biggest winner? The government
Ironically, the biggest beneficiary of these tax hikes will not be the South African people—but the government itself.
Fully aware that alcohol consumption is inelastic, the state will rake in even more excise tax revenue—while pretending that this is about public health.
And where will this extra tax money go?
Not into alcohol education programs, not into better rehabilitation facilities, and not into social intervention initiatives. Instead, it will likely be poured into failing state institutions—or simply mismanaged altogether.
Final thoughts
From a distance, a sin tax—a punitive tax on bad habits—might sound like a good idea. But history repeatedly shows that these kinds of interventions often have the opposite effect, causing more harm than good.
There is no doubt that alcohol abuse must be addressed—but more taxes are not the answer. Make your voice heard and oppose yet another reckless tax increase here: https://www.freesa.org.za/protecting-south-africas-entertainment-industry-a-call-to-action-against-even-more-taxes-on-alcoholic-beverages/
Paul Maritz is is director of Free SA, a foundation promoting rights of expression and equality.